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Shell leads as big oil raises R&D by 16%

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Shell leads as big oil raises R&D by 16%

By Ed Crooks in London

Published: July 28 2008 19:15 | Last updated: July 28 2008 19:27

The west’s biggest oil companies raised their research and development spending by an average of 16 per cent last year but still lag behind many other industries, a survey by the Financial Times has found.

There is also a wide variation in R&D budgets both in absolute terms and as a proportion of revenues.

Royal Dutch Shell, already the top spender in 2006, raised its budget the fastest with a 36 per cent increase to $1.2bn for 2007. Last year, it spent more than twice as much as BP on R&D.

ExxonMobil, the world’s biggest oil company, has a market capitalisation almost twice that of Shell but spent only two-thirds the amount on R&D, at $814m.

Relative to revenues, oil companies’ R&D expenditures are strikingly low: about 0.3 per cent last year for Shell and 0.2 per cent for Exxon.

That compares with typical proportions of 15 per cent for technology and pharmaceuticals companies and 4-5 per cent for motor companies.

The figures for the eight biggest oil companies in the US and western Europe come from companies’ annual reports.

This week, the five largest of those groups will be releasing results for the first half of the year, with BP reporting on Tuesday, Shell and Exxon on Thursday, andTotal and Chevron on Friday.

All are expected to report record profit, thanks to the surge in the oil price to an average of $105 a barrel during the six months.

But concerns have been mounting about their long-term prospects and their shares are valued at very low price-earnings multiples.

Rex Tillerson, chairman and chief executive of Exxon, was criticised in the spring by members of the Rockefeller family for failing to respond to the “challenges of a rapidly changing energy environment”.

Shell has a chief executive, Jeroen van der Veer, with a background in chemicals and a chairman, Jorma Ollila, with a background in telecommunications, who have both stressed the importance of technology to the company.

It has been under more pressure than other leading oil companies to distinguish itself through technology because it has the lowest ratio of reserves to production among the big five.

Shell said it had spent its increased R&D budget last year on a range of projects including the storage of carbon dioxide emissions and biotechnology.

The Patent Board, a US research firm, has for more than a year reported Shell as the strongest international oil company for innovation, with only Exxon also regularly making the top 10. The remainder are mostly oil services companies such as Halliburton.

Schlumberger, the world’s biggest oil services company, raised its R&D budget by 18 per cent last year to $728m, a level exceeded only by Shell, Exxon and Total.

EDITOR’S CHOICE

In depth: Oil – Apr-29

Cook in pole position in race to be Shell chief – Jul-07

Copyright The Financial Times Limited 2008

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